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How to start transitioning from static planning to active planning

Way back when, financial professionals had one objective and one objective only: accurately track past performance and explain why the results turned out as they did.

Oh, how times have changed.

Constant volatility, increasing competition, and an ever-quickening pace of business have left companies struggling to nimbly respond to market pressures and opportunities. At the same time, the volume and complexity of their financial data continue to grow. As a result, finance professionals are not just tasked with managing more information—they’re also increasingly asked for operational and strategic insight.

This means the old ways of collecting data and creating reports are essentially useless, because old-school plans aren’t detailed enough, are tough to translate to actionable goals, and lack a single point of view. No wonder many CFOs say they can’t focus on strategic priorities.

Transitioning from static planning to a modern, active process can seem daunting, but the benefits are myriad. To get you started, consider these four specific best practices that high-performing FP&A teams swear by.

1. Institute a continual planning process—and the correct software

The most elite companies don’t forecast on a semiannual or even a quarterly basis. Instead, they do it all the time. These firms evaluate their model and look at projections every week, and then go into more detail every quarter. Doing this allows the FP&A teams to provide the almost real-time insights that their C-suites crave and prevents the guessing game that results from once-a-year planning.

Constantly updating forecasts, however, can’t be done in Excel while maintaining any semblance of sanity. Rather, it requires sophisticated software that lets team members immediately adjust their models based on business changes.

2. Stay in constant contact with business units

Beyond utilizing powerful software to make their lives easier, top finance teams also embed members with various divisions, whether that’s sales or global services. This way, FP&A representatives attend staff meetings and are constantly up-to-date, which is invaluable when working in a high-growth, rapidly changing organization.

3. Work backward

The basic tenets of good time management go a long way toward avoiding those frenzied all-nighters. High-performing FP&A teams start by identifying dates and working backward from there to ensure their budgets are built without unnecessary deadline drama. Doing so encourages scheduling meetings far in advance of deadlines, which ensures ample time to meet with their boards and executive teams as they finesse their forecasts. Proper planning also allows time for building in scenario and what-if planning.

Many of these teams meet with their boards in the third quarter. This review ensures everything from the balance sheet to the P&L statement looks right for the next 12 to 18 months, barring any surprises. Then, after meeting, the team can compare that “business as usual” forecast to guidance it receives from the board on next year’s bookings, profitability, and so forth. From there, the team meets with executive management to receive priorities, which get layered on top of the information from the board. For example, if management provides a new strategic initiative that requires incremental investment, the finance group can look at the board’s information to determine where that money can come from. Doing this early leaves a three- to- six-month buffer that can be devoted to honing guidance before receiving budget approval.

4. Focus on drivers, not details

While it’s critical to be in close contact with the business you support, it’s also important not to burden your business partners with too much data. Remember: Their primary job is to run the business, not to answer never-ending questions from finance. A smart way to nail the right communication balance is to create high-level forecasts that focus on important business drivers—think profit, risk, working capital—without delving into nitty-gritty line items.

Because technology has increased access to nonfinancial benchmarks, FP&A groups have far more KPIs to measure. In fact, according to the Adaptive Insights CFO Indicator Report Q3 2016, 76% of CFOs said their teams are tracking nonfinancial KPIs, rather than merely relying on balance sheets and income statements. These KPIs are incredibly useful, but it’s important not to get bogged down with too many.

Choosing the drivers will depend on the business. Some—like R&D or general and administrative expenses—are fairly universal. But, for example, the finance team at a software-as-a-service company should also take a look at sales and marketing efficiency, as well as lag time in revenue recognition.